Basic Ethics of Business Negotiators

At the Chicago ABA Meeting, a helpful panel was presented on “Ethics Basis for Business Lawyers.”  The discussion of Rule 4 — addressing responsibilities with respect to persons other than clients — boiled down to the ethics of negotiation.  One of my favorite definitions of mediation is “negotiation with adult supervision” and it is interesting to look at the process through the ethical constraints — not of the mediator — but of the negotiating counsel.(I strongly recommend that those interested in this topic buy and heavily mark-up the textbook by Carrie Menkle-Meadow and Michael Wheeler, What’s Fair: Ethics for Negotiators (Jossey-Bass 2004).)

Panelist Arthur J. Lachman, of Seattle, WA, boiled down the obligation to four principles. 

  • FIRST, an attorney can’t make false statements of material fact, or allow her client to omit material facts whose omission would constitute fraud. 
  • SECOND, an attorney can’t otherwise assist a client in a course of action (including a course of negotiation) constituting criminal or fradulent conduct. 
  • THIRD, an attorney cannot communicate with the adversary client without the knowledge and consent of the adversary attorney. 
  • FOURTH, an attorney must (should?) advise the adversary of an erroroneously conveyed document.

As you can imagine, the fun was in the discussion.  First. Mr.  Lachman emphasized that the rule about making false statements (Rule 4.1(a)) contains a materiality provision.  This differs from Rule 3.3(a)(1), addressing an attorney’s statements to a tribunal, which contains no such materiality exception. 

Moreover, it is broadly accepted that opinions as to the value of an asset or a claim, statements about the strength of one’s legal position or the weaknesses in the adversary’s position, or statements concerning one’s flexibility in bargaining are not material within the meaning of the Rule.   By way of illustration, when your client has told you she needs $500,000 for an asset and at the first session an offer is made for $600,000, it is entirely okay to reply “Sorry, that just won’t be good enough.”  And according to fellow panelist Geoffrey Hazard, an acceptable response to the representation “We always require this language in our negotiated documents” is “Well, you’re not going to get it in this one.”

By contrast, the existence and scope of insurance coverage is a material fact.  So is your client’s ability to pay or impending bankruptcy.  Mr. Lachman noted that the risk of enforcement and professional discipline is remote; however, the risk of liability is very real, in the event of fraud or other civil or criminal bad acts by the client.  Indeed, the overarching obligations of client confidentiality (Rule 1.6) contain an exception permitting the attorney to reveal confidential client information when necessary “to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer’s services.”

The panel agreed that an attorney may not communicate with an adversary client who is represented without the consent of that party’s counsel (Rule 4.2).  But they also agreed that parties are utterly free to communicate with each other.  So what happens when a party advises his attorney she is going to sent a letter to the other side?  When the attorney advises the client on such a letter?  When the attorney drafts the letter?  When the attorney suggests that the client send the letter?  As a mediator, I sometimes speak to counsel outside the presence of the client.  Is it ethical for me to speak to the client outside the presence of counsel?  Or to arrange for the clients to communicate with each other without their attorneys?

One provision that was not discussed was Rule 4.4(a), which provides: “In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person.”  This evokes a situation that I have seen in mediation — particularly court-required mediation — too often.  Counsel refuse to supply information needed to assess a claim or defense in mediation, or on the other hand use the mediation to obtain that information but not to engage in good-faith discussion.  Does such behavior have ethical as well as practical implications?

And is there any role for the mediator who witnesses counsel stating, either to the adversary or to the mediator privately, “We won’t budge another penny” or “There’s no way my client can be found liable for this” or “If you can’t prove that my client was there then the mediation is finished”?  Are these statements so material to the mediation process that they cannot be false?  Or are they mere puffery?

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